* Dollar-buying in forex market is injecting cash - dealers
* C.bank lets 125 billion yuan drain this week
By Chen Yixin and Pete Sweeney
SHANGHAI, Dec 13 China's key seven-day repo rate
was down on Thursday, leading a broader decline in money rates,
as yuan entering the system through the forex market offset
funds drained out through open market operations.
Dealers said that the central bank has been trying to pull
back the yuan spot rate in the forex market this week
by ordering state-owned banks to buy dollars and sell yuan; a
side effect of this push has been to pour yuan into the
The benchmark weighted-average seven-day bond repurchase
rate slumped 32.92 basis points to 2.6763 percent
from 3.0055 percent at the close on Wednesday.
The 14-day repo rate fell to 2.9832 percent
from 3.0131 percent, and the one-day repo rate
rose to 2.2839 percent from 2.2629 percent.
There is no hard evidence that the People's Bank of China is
intervening in the market, but dealers believe that the recent
rash of dollar-buying by major state-owned banks in the forex
market is being conducted at the behest of the central bank.
The central bank, they say, has become uncomfortable with a
yuan that hit consecutive record highs against the dollar in
late November, and would likely have strengthened further in
December had the central bank not forcibly restrained further
growth by holding back the official midpoint.
However, whether the sudden surge of yuan-selling is due to
central bank interference, a resurgence of genuine market demand
for dollars, or both, the effect has resulted in a flush money
This has kept a cap on short-term rates even in the face of
rising money demand from corporates looking to stock up on ready
cash to get through the end of the year.
To prevent rates from declining further, the PBOC only
injected 18 billion yuan through open market operations on
Thursday, resulting in a net 125 billion flow out of the market
for the week, the biggest drain in nearly two months.
Current Prev close Change
7-day repo 2.6763 3.0055 -32.92
7-day SHIBOR 2.6600 3.0160 -35.60
Note: Repo rate is weighted average.
($1 = 6.2518 Chinese yuan)
(Editing by Sanjeev Miglani)